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canadian preferred shares rate reset

Canadian Preferred Shares Rates Reset

What You Need to Know

Effective January 1, 2023, the dividend rates on many Canadian preferred shares will reset. This is a significant event for investors who hold these securities, as it could have a material impact on their investment returns.

Preferred shares are a type of hybrid security that combines features of both stocks and bonds. They typically offer higher yields than bonds, but they also have more risk than common stocks. Preferred shares are often issued by banks, utilities, and other large companies.

The dividend rate on a preferred share is typically fixed at the time of issuance. However, many preferred shares have a feature that allows the issuer to reset the dividend rate after a certain period of time, usually five years.

Why Are Rates Resetting?

There are a few reasons why issuers may choose to reset the dividend rate on their preferred shares. One reason is to reflect changes in interest rates. When interest rates rise, the cost of borrowing money for companies also increases. This can make it more expensive for companies to pay dividends on their preferred shares.

Another reason why issuers may reset the dividend rate on their preferred shares is to adjust for changes in the company's financial performance. If a company's earnings have declined, it may need to reduce the dividend rate on its preferred shares in order to maintain its financial stability.

What to Do If Your Preferred Shares Are Resetting

If you own Canadian preferred shares that are resetting, you should carefully consider your options. You may choose to hold on to your shares, sell them, or exchange them for another type of security.

If you decide to hold on to your shares, you should be aware that the new dividend rate may be lower than the current rate. This could have a negative impact on your investment returns.

If you decide to sell your shares, you should do so before the reset date. This will ensure that you receive the current dividend rate.

If you decide to exchange your shares, you should contact your broker to discuss your options. There are a number of different types of exchange offers that may be available.

Conclusion

The reset of Canadian preferred shares rates is a significant event for investors who hold these securities. It is important to understand the reasons why rates are resetting and to carefully consider your options. By taking the time to do your research, you can make informed decisions about your investments.